There are over 3.3 billion customer loyalty program memberships in the US. That’s an average of 29 per household. It’s also been discovered that it’s up to 10 times harder to obtain a new customer than it is to sell to a current one. (Source COLLOQUY Loyalty Census 2015)
As we move towards a subscription-based economy, in which access is valued over ownership, the importance of consistently building trust with your customer-base can’t be understated. This is particularly the case with digital offerings like media (Netflix and Amazon Prime, for instance) and SaaS. A company’s “churn” – the rate at which subscribers are cancelling their membership – can be the difference between roaring success and bankruptcy.
This post explores seven ways you can build an effective customer loyalty program into your own customer retention strategy. The advice is drawn from some excellent examples and is completely actionable.
What is Customer Loyalty Marketing?
Customer loyalty marketing focuses on incentivizing your current customer base to make more purchases. It refers to any kind of interaction that builds trust or a desire to maintain a relationship with you.
The most common way that companies achieve this is through customer loyalty programs. Airlines initially led the way with their “frequent flyer” schemes – rewarding travelers with points whenever they made a journey. These could then be redeemed – for flights, hotel rooms, restaurant meals etc. – at a later date.
The reason that these schemes were a huge success is because they were built on an already-established customer desire: to give loyalty to a brand. Millennials in particular believe it to be important to find businesses that they can stick with.
Nowadays, customers are rewarded in all sorts of ways. KISSMetrics, for instance, provide exclusive webinars to their customers, Amazon offer free Kindle books for repeat purchases, Dropbox allow their users to earn rewards with a customer referral program, and eBay now include the option to donate a portion of any sale to charity.
7 Ways to Run A Successful Customer Loyalty Program
The important point to bear in mind is that your customer loyalty program is part of your overall value proposition but not your core offering. It is something that is offered in addition to it.
Take the example of Amazon Prime. It’s not a specific product in and of itself. Rather, it’s a bundle of various services – like streaming video, music, free delivery, early access to deals, access to a Kindle library – many of which reward frequent use. To get value from free delivery, for instance, repeat purchases need to be made. Free Kindle eBooks are only available on a monthly basis.
So loyalty rewards can be given either directly in exchange for purchases, in a form like points, or as add-ons to the normal service, as in the case of partner-offers. Let’s jump into the tips themselves.
1. Implement a Points-Based Reward System
A points-based system is one where buyers are rewarded with some kind of “currency” that can be exchanged for goods or services. It’s a simple methodology that’s used by many retailers, whether they operate online or from a physical location.
It’s a model that lends itself to businesses that generate short-term, repeat sales. The most likely candidates for this approach will be e-Commerce stores, like Muscle and Strength shown below. That said, digital retailers, like Kobo, are also effectively using this strategy.
The key here is simplicity! It’ important that customers understand exactly what they can get with their points. Muscle and Strength explain that they can be used to apply a discount to goods in the normal buying process.
Kobo is an example of an eBook retailer that has effectively implemented a customer loyalty program. In doing so, it’s been able to distinguish itself from major players like Amazon (who don’t offer a similar scheme). It also offers a VIP level that doubles the amount of points earned and includes a free yearly book.
2. Give Away Free Digital Products
This is an exceptionally easy way for any kind of online company to build loyalty. There’s also very little cost involved. Both Amazon and Starbucks have pioneered this strategy.
You can offer either a third-party product, such as a Kindle book or report, or your own in-house publication. Many publishers would bite your hand off at the opportunity to promote either themselves or a new author to your following.
Amazon, pictured below, allows their customers to download a free Kindle book as a reward for making a certain amount of purchases. They make sure that they include the normal price to highlight the fact that it’s a real reward (not just an empty trick).
Starbucks also offer a free weekly iTunes download. You have to go into the store where you can collect a coupon with a code on the reverse. You can then redeem this online and choose from a selection of virtual goods.
Finally, consider KissMetrics. They offer a host of regular content to their subscribers – webinars, reports, marketing guides – all of which, though free, are designed to help marketers get the most out of their product. This is a nice bonus for anybody who subscribes to their analytics software.
3. Always Offer a Referral program
Being a referral software company, we had to include this one didn’t we? If you’re involved in selling any kind of repeat digital product, this one is absolutely essential.
If you’re not keen on giving away a portion of your revenue, you can always offer extra features. Dropbox has used this strategy to huge success. In fact, they’ve spent very little on advertising to grow the company to the point where it’s worth 4 billion. They’ve instead relied almost exclusively on customer loyalty programs like this one to grow their customer base.
4. Establish Partner Offers
This is a tactic any company offering a pay-monthly based service can utilize. By making strategic partnerships with other companies, you can offer discounted subscriptions and one-off promotions.
Done properly, it also has the potential to communicate to your customer-base that you fully understand their needs and are willing to “hustle” for great deals on their behalf. Hostgator, for instance, include the option to redeem free Adwords credit. American Express’ program Plenti, one of the biggest loyalty card services in the US, provides the opportunity to redeem points with a range of partners – everyone from Macy’s to Enterprise Rent-a-Car.
5. Run Discount Events and Giveaways
This tip follows on nicely from the previous one. Magazines have been offering exclusive giveaways for years and it’s a strategy that digital marketers are starting to see the benefits of. Grow Your Own, a fruit and veg growing magazine, offers big monthly giveaways for its readers.
This is something that digital marketers can incorporate into their loyalty marketing strategy almost straight away. When you couple it with a customer-centric approach, posting images of winners, allowing you subscribers to suggest prizes etc., you have the opportunity to build loyalty even further.
Grow Your Own cleverly post all of their giveaways publicly, but make sure only readers can enter by including a security question like, “Which vegetable is pictured on page 13?”
6. Look at Sustainable Reward Structures
A definite trend in consumer behavior is the movement towards ethical brands. People are becoming increasingly concerned about the way that companies create and market their products, and the effect that their strategy has on broader society and the environment.
One way of taking advantage of this shift is to create an ethical initiative. By offering rewards for positive customer behavior you’re able to do two things. First, you can position yourself as a principled business, tying directly into your customers’ values as part of your value proposition. Second, as in the example below, because attaining rewards can require an action on the customer’s behalf, you’re also increasing their investment over the long-term.
This is what OfficeDepot has done with their “Rewards for Recycling” program. If you recycle your ink cartridge in-store you’ll be given 200 points. They can be redeemed when making a purchase.
Project7 donates a portion of every sale to charity. In a sense, this acts as a “reward” for the ethical consumer who, alongside being given their chosen product, has the satisfaction of knowing that they have done something good.
7. Reward Active Community Members
Customers that are in communities associated with a business spend 19% more than those that aren’t. Building a community, whether it’s through a forum or a third-party group like Facebook, can yield significant dividends.
But there’s an issue, especially for small businesses. Effectively growing communities takes a lot of work and requires high engagement from the participants.
One way that Spotify has overcome this problem is by creating a customer loyalty program, the aptly-named “Rockstar Scheme”, exclusively for their forum users. They’re encouraged to be active, with the promise of free premium memberships, branded goods and even gig tickets. In one fell swoop, Spotify has solved the issue of community management.
You shouldn’t ignore customer loyalty programs. They offer too much potential to increase customer retention. They speak directly to your user-base, telling them that you value them and don’t take them for granted. In an age of increased transparency, where more people are feeling the need to form real relationships with the companies they buy from, this is vitally important.
You might also be intrigued to hear that increasing customer retention by just 5% can lead to a doubling of profit. An effective program will also allow you to take advantage of other effective marketing methods like referrals, partnerships and community-building. All ways of effectively increasing your bottom line.
Brandon Gains is the Growth Marketing Lead at Referral SaaSquatch – a leading customer referral marketing platform. You can connect with him via email brandon at saasquat.ch or on twitter @brandongains